Charitable IRA Rollover Made Permanent

The tax bill passed by Congress and signed into law by the president on Friday, December 18, made permanent what is popularly known as the charitable IRA rollover. This provision enables IRA owners over the age of 70½ to transfer to charities up to $100,000 per year from their IRA accounts without having the distributions added to taxable income while having them count towards mandatory distributions.

Since the law was first enacted in 2006, Congress commonly acted in late December to extend the law for one year, retroactive to the beginning of the calendar year. Unfortunately, once action was taken, donors had very little time to advise their IRA administrators to make charitable transfers and many, not wanting to incur a penalty for failing to take the mandatory distributions, had proceeded to take a personal distribution of the required amount.

Now, the uncertainty has been removed. A donor who wants to make a gift from an IRA can plan in advance, no longer waiting anxiously to see if the legislation is once again extended.

In making the provision permanent, Congress did not change the rules. As before,

• The limit remains at $100,000 per year.
• The gift cannot be made to a donor-advised fund, supporting organization, or private foundation.
• The donor can receive no financial benefit in exchange for the gift, which rules out transfers for gift annuities, charitable remainder trusts, and pooled income funds.

Three Other Provisions That Are Made Permanent

Although the charitable IRA rollover is getting most of the attention, there are other provisions benefiting charities that were also made permanent. 

• One provision is enhanced deduction limits allowed for charitable contributions of real property for conservation purposes. This will be welcomed by environmental organizations that regularly receive such gifts.

• A second provision valuable to food banks that depend on donations of food from producers is an enhanced deduction for gifts of food inventory. The allowable deduction is the lesser of either twice the basis or basis plus one-half of the appreciation.

• A third is favorable treatment of basis adjustment when an S corporation contributes appreciated property. Instead of having to reduce basis in their S stock by their share of the fair-market value of the contributed property, they need to reduce only the basis in their S stock by their share of the basis of the contributed property. This provision makes it more advantageous for owners of S corporations to cause their company to contribute appreciated property.

Future Goals

Making the charitable IRA rollover provision for outright gifts as well is one goal of the charitable community. The other is to expand the provision to include transfers from an IRA to charity for a gift annuity or to a charitable remainder trust. This would appeal to the large number of donors who do not feel they can afford to forego income from contributed IRA assets but would consider a charitable gift of some of those assets if they could receive income.  An organization known as the Charitable IRA Initiative continues to work on behalf of the charitable community to attain this goal.